The effectiveness of tax policy interventions for reducing excessive alcohol consumption and related harms.

Elder R.W., Lawrence B., Ferguson A. et al. Request reprint
American Journal of Preventive Medicine: 2010, 38(2), p. 217–229.

The review which led a national US task force to recommend alcohol tax rises as an important public health measure to curb excessive alcohol use and related harms. US and UK politicians remain wary for reasons which can’t just be dismissed as populism.

Abstract This systematic review of alcohol tax policy interventions for reducing excessive alcohol consumption and related harms was conducted for the Guide to Community Preventive Services according to the Guide’s rigorous common template. The Guide is maintained by the US government’s Centers for Disease Control and Prevention, which appoints a task force of independent public health and prevention experts to oversee the reviews and make recommendations (these are the ones based on the featured review) to promote the health of the US population based not just on effectiveness, but also other potential benefits and harms and real-world applicability.

Given evidence that alcohol taxes feed through to retail prices, the review included studies not just of tax levels, but also the impact of price, with the provisos that the study was of an acceptable quality, published in English, and conducted in a high-income economy. 73 research papers met the review’s criteria. Most related prices or taxes to a society’s total alcohol consumption; on the basis of clearly established links between consumption, excessive drinking, and harmful consequences, these studies were considered relevant to the review’s remit. Remaining studies assessed relationships with excessive or underage drinking or alcohol-related harm, most commonly traffic accidents. Some studies were of tax/price rises, others of cuts, and others still of different levels in different jurisdictions. Regardless of the design of the study, nearly all found that higher alcohol taxes or prices were associated with falls in indices of excessive drinking or alcohol-related illness or injury. Details below.

Of the 50 studies relating price to overall consumption, 38 calculated price elasticities. The extent to which an increase in price results in a proportionate change in consumption. For example, a price elasticity of -1 means that when price rises by 10%, consumption of the same commodity falls by 10%. Elasticities are rarely so rigid because (among other factors) people buy for reasons other than price and may be prepared to pay more to sustain consumption. As a result, a 10% increase in price might result in just a 5% fall in consumption, a price elasticity of -0.5. Nearly all the 38 studies found negative elasticities, indicating that higher prices were associated with lower per-capita consumption. In both the USA (-0.63) and elsewhere (-0.68), the typical elasticity meant that as price rose by a given %, consumption fell by about two-thirds as much. In another 12 studies, elasticities could not be calculated, but generally higher prices were associated with lower consumption.

Another 16 studies used survey data on how much individuals said they drank. Most included young respondents often underage for drinking, and all but two were conducted in the USA. Generally higher prices or taxes were associated with a lower prevalence of youth drinking, though only four out of nine studies found at least some statistically significant results. Among adults and the general population too, tax and price rises were associated with a lower rate of heavy drinking (usually typified as ‘binge’ drinking) and related harms. There were some indications that impacts were greatest among population groups who drink most often to excess, such as young men.

Half the 22 studies of alcohol-related harm concerned motor-vehicle crashes and/or consequent fatalities. Generally these found significant falls as tax or price rose, impacts comparable Because tax is only part of what determines price, numerical values for tax elasticities were lower (by about a factor of 10) than for price. to those on alcohol consumption. Liver cirrhosis was the other main cause of death investigated. All five studies found higher prices associated with fewer deaths, though impacts varied considerably. Some other causes of death were also estimated to fall. The three studies which looked at this found higher alcohol taxes were associated with decreased violence – and specifically violence to children – to a degree comparable to impacts on alcohol consumption, while two found higher prices curbed the spread of sexually transmitted diseases.

Consistency across high-income economies in North America, Europe, and the Western Pacific suggest that in such economies the link between overall alcohol consumption in a society and tax/price is broadly applicable. Findings on alcohol-related harms derive primarily from North America but are likely to be broadly applicable across high-income countries. Sectors of the population with least disposable income would be expected to be most sensitive to price, but the review was unable to test this expectation. It was also unclear whether heavier drinkers are more or less sensitive than lighter drinkers.

According to the World Health Organization, tax rises are the most effective and cost-effective measure to reduce alcohol-related harm when at least 1 in 20 of the population is a heavy drinker, and a US analysis found net costs savings for society due to the injury prevention impact of a 20% tax rate.

The review noted that while raising alcohol taxes provides government revenue, it may be resisted by the alcohol industry and consumers; public support increases when revenues are devoted to alcohol prevention and treatment. It acknowledged equity concerns that higher alcohol taxes may have the greatest economic impact on poorer people, but argued that: in the USA these taxes would still constitute a very small part of the tax burden; inequality could be redressed elsewhere in the tax and benefits system (such as in the availability of healthcare services for uninsured and other vulnerable populations); and poorer citizens can be expected to benefit most in health terms from reductions in excessive alcohol consumption.

The reviewers concluded that these results constitute strong evidence that raising alcohol taxes is an effective strategy for reducing excessive alcohol consumption and related harms. The impact is expected to be proportional to the size of the consequent price rise. For example, a 10% increase in alcohol prices has typically resulted in a 3% to 10% fall in consumption. Impacts will probably also depend on factors such as disposable income and the demand elasticity for alcohol among different population groups.

As the review comments, the proposition that as alcohol price rises, consumption falls, is one of the most well established in the alcohol use prevention armoury, and plausibly in line with general economic theory and data about the response of demand to price. Given its findings, the Task Force on Community Preventive Services recommended “increasing taxes on the sale of alcoholic beverages”.

Convincing as it was, the review did not always clearly separate tax from price; tax obviously influences price but in complex ways which mean that a general rise in tax will not lead to the same proportionate rise in prices across different types of drink sold under different licensing conditions. Especially when it comes to the harms from a given amount of drinking, the assumption that primarily North American studies are an adequate guide to expected impacts in other drinking cultures is open to question. Even within Europe, a given consumption change has impacts which differ greatly across nations. Another general gap in the analysis was that it was unable to explicitly account for the potential impact of drinkers switching to other beverages if one type of drink increases in price; details below.

If drinkers switch drinks, price rises may substantially curb consumption of the now more expensive drink, yet the impact on overall alcohol consumption will be less. If the elasticity for alcohol as a whole is estimated from the elasticities for each beverage, the result will be to overestimate the impact of price and tax rises. Adjusting for product switching is however complex. UK data (1 2) shows that often pairs of beverages substitute for one another, but sometimes the opposite happens; as consumption of one falls or rises in response to its price, so does consumption of the other. But overall a major meta-analytic A study which uses recognised procedures to summarise quantitative results from several studies of the same or similar interventions to arrive at composite outcome scores. Usually undertaken to allow the intervention’s effectiveness to be assessed with greater confidence than on the basis of the studies taken individually. synthesis of relevant studies found that taking in to account the prices of other beverages significantly weakened the link between price and consumption of any given beverage. This analysis argued that “interdependencies in demand across alcohol beverages” should be taken in to account in making decisions on tax. Some of the studies incorporated in the featured review (for example, one which contributed six of the 38 elasticity estimates) did not take account of price competition between different beverages, somewhat weakening confidence in the review’s conclusions about the impacts of price (and therefore tax) on overall consumption. Another major meta-analysis found that across all the studies which gave a figure for alcohol consumption as a whole (therefore taking in to account any switching), elasticity averaged -0.51, indicating that as price levels rise, consumption falls by about half as much. Heavy drinking was cut too but less so than drinking overall.

Some tax or price policies are designed to limit the ability of consumers to switch to products which offer more alcohol for less money. Among these is ‘volumetric taxation’ – setting tax levels solely on the basis of alcohol content and uniformly across all types of drinks. In the Australian context this was estimated to cost just $0.58 million but to save $57 million in health costs due to reduced drinking, leading to a net cost saving of $56 million Australian dollars, about £28 million. Despite costing less than current policies, it would also avert the loss of an extra 11,000 years of life adjusted for disability, making it the most cost-effective and cost-beneficial of the tested interventions. This analysis does seem to have “… the change in consumption for each beverage was then estimated by summing the change in quantity derived from the change in its own price and the changes in price of the other alcohol drinks.” accounted for price competition between different types of drink.

Switching was also accounted for in a mathematical model based on English data. Price rises applied across all products in the on- and off-trade were estimated to substantially reduce average consumption, partly due to limited switching between drinks because price increased across the board, and partly because all consumer groups are targeted equally. Raising the price only of low-priced products led to much smaller falls in consumption (for example, under 0.5% for a 10% rise compared to over 4% if this were applied to all drinks) because limited market segments are affected, and there would be some switching between drinks. Alcohol-related harms were estimated to fall along with overall consumption.

Another proposal is to set a minimum price per unit of alcohol across all types of beverages. The mathematical model mentioned above was used to estimate that a minimum price of £0.40 would curb consumption by 5.4%, most notably among heavier drinkers, and save a life a day by the tenth year of the policy, when hospitals would be relieved of nearly 6300 alcohol-related admissions a year. It would also cut crime, absence from work, and loss of employment, totalling nearly £950 million social cost savings at a cost to the Treasury of around £120 million.

Given the broad agreement among studies and reviewers, the major questions are not over the validity of the findings, but over whether governments mindful of the opinions of the drinking public and the importance of drink-related industries will raise alcohol taxes/prices sufficiently to realise the potential public health gains. This is especially the case in Britain, which compared to other European nations already has among the highest alcohol taxes, and where drink prices are relatively high compared to other commodities.

In 2009 the UK House of Commons Health Committee advocated a minimum per unit price allied with duty increases on high-alcohol products, yet no UK-wide political party potentially in a position to implement such policies is planning across the board tax rises or minimum pricing. The main opposition party plans to raise alcohol taxes, but only on high-strength beers and ciders and drinks preferred by teenagers, an option similar to that estimated to have very minor effects on overall consumption, but one which might alienate few adult voters. The current UK government has no plans for alcohol tax rises or minimum prices to combat alcohol-related harm. Scotland, where drink problems are the most severe of the UK nations, is an exception; legislation backed by the Scottish government and currently before the Scottish Parliament incorporates a minimum price per unit of alcohol in its proposals. Implementation barriers are further explored below.

Given the evidence that tax rises would raise revenue and cut public service costs, in 2009, 25 cash-strapped US states sought to increase alcohol taxes. Despite a trend to appease public and political opinion by planning to divert new revenue to address alcohol-related harm, just six succeeded in getting the bills passed by their legislatures, reportedly defeated by alcohol-industry lobbying.

One reason why public and politicians remain unconvinced is that studies concerned primarily with harm fail to account for the benefits drinkers feel they get (the reason why they are prepared to pay) from drinking. Sometimes studies do account for the minor (relative to the overall harms) medical benefits of low-level regular consumption, but these are not why most drinkers drink. An industry-funded review found research indicating that moderate drinkers “experience a sense of psychological, physical, and social well-being; elevated mood; reduced stress (under some circumstances); reduced psychopathology, particularly depression; enhanced sociability and social participation; and higher incomes and less work absence or disability”, benefits which have “barely begun to be incorporated into epidemiologic research and analyses.” Against this it can be argued that neither do studies account for all the negatives related to drinking such as family break-up, low-level abuse, and family and personal distress.

Neither can the equity arguments which weigh with some politicians be dismissed. Faced with price rises, drinkers do not generally cut back enough to avoid spending more. Minimum pricing or alcohol-content taxation would reduce or eliminate the option of switching to cheaper drinks. The impact of a greater proportion of the family budget being diverted to drinking is likely to be felt most sharply among the poorest. The featured review and others argue that this aggravation of inequality could be redressed by selective use of the tax revenues, and that the poorest may also gain most in health. However, these potential and/or future mitigations are set against an almost certain and immediate impact on the emptiest pockets.

Thanks for their comments on this entry in draft to Randy Elder of the US Guide to Community Preventive Services and Petra Meier of the University of Sheffield. Commentators bear no responsibility for the text including the interpretations and any remaining errors.